By Kagisho Mahura, investment and retirement planning specialist at Gradidge-Mahura Investments.

I had a discussion with a client a few months ago that has sensitised me to the power dynamics that exists between financial advisers and clients. The client was a senior manager in a mining company, and had been informed that he would be receiving a lower than inflation salary increase, and that he would not be receiving a bonus as a result of financial difficulties faced by the company. He had started a retirement annuity investment with us about a year earlier, and now wanted to stop contributions. The conversation went something like this:

Client: I have been dreading calling you, but I have no option but to ask you to stop the debit order on the RA I started last year.

Me: Sure, I’ll get one of the ladies from admin to send you a form to stop it. Why were you dreading to call though?

Client: The last time I stopped my RA contributions the adviser was very upset with me. Apparently he was going to lose money as a result

Me: Oh, makes sense. That will not happen with the RA you’re in. There were no upfront fees in that investment so there are no commission clawbacks now for stopping the premium, and there are no penalties in the investment.

Client: That’s a relief. Look, I eventually told to adviser to get lost because I felt he was being a bit rude towards me. In fact I had to handle the paperwork with the company myself after that conversation.

This issue raised its head again recently when I signed on a new client who had been using the services of an insurance agent. She received a strongly worded email from the incumbent adviser, upset that she was changing advisers and warning her that not all advisers would have her interests at heart the way he did. He then informed her he would be invoicing her for the fees that he was expecting to earn from the policies he had taken out for her! Fortunately when we informed him that we would be assisting the client in disputing the invoice, we did not hear from him again.

The role of the financial adviser

The South African Financial Planning Handbook states that “at the heart of the financial planning profession lies the relationship between the client and the financial planner.” The Financial Planning Institute’s Principles of Conduct in their Codes of Ethics and Professional Responsibility, require that the adviser always put the interests of the client first. The bottom line is that clients need to know that the adviser takes their fiduciary responsibility to the client seriously. This means that it is the client’s interests that must be looked after first. The Code of Ethics and Professional Responsibility defines a fiduciary as one who acts in utmost good faith, in a manner that he or she reasonably believes to be in the best interest of the client.

Given the importance of the relationship and the requirement for advisers to conduct themselves in a professional manner, why is it that relationship between client and adviser breaks down so spectacularly in some cases? Part of the answer may lie in the fact that fewer than 5% of financial planning practitioners in South Africa are Certified Financial Planners®. In order for advisers to maintain their certification they would need to subscribe to the Code of Ethics and Professional Responsibility, and a deviation from the requirements of this Code could see an adviser losing his or her certification. Another reason why relationships break down could be attributed to the fact that many tied agents tend to operate in a high-pressure, sales-driven environment, and as a result are penalised by lapses caused by the client stopping an investment or retirement contribution. A series of lapses could place the agent in a position where their earnings are severely compromised, which is a stressful place to be, and which could easily spill over into arguments with clients.

When to put your foot down

In your interaction with the adviser it is always important to ask yourself the question ‘is this advice in my best interest?’ If the answer is a clear no, then a frank conversation needs to happen with the adviser. Sometimes the answer is not clear, in which case the client needs to seek clarity from the adviser, and raise their concerns. An adviser needs to be seen as any other service provider, and therefore should be treated as any other service provider. The fact that dealing with personal finances can be a complex and highly emotive matter should not affect the power dynamics that exist between client and service provider. The client needs to be assured that their interests are being put first and foremost at all times.